Sinovel ordered to set record straight

The China Securities Regulatory Commission (CSRC) has called on Shenzhen-listed Sinovel Wind Group Co (Sinovel), China's largest wind turbine maker by market share, to come forward with detailed corrections on fraudulent information contained in its 2011 financial accounts before April 20, the company announced Friday night.

On March 7, Sinovel announced in a self-check report filed with the Shenzhen Stock Exchange that it had falsified its annual earnings report to add an extra 929.03 million yuan ($150.04 million) in revenue and 168.35 million yuan in profits to its earnings through 2011, figures which respectively accounted for 8.9 percent and 21.7 percent of the inflated financial figures it originally offered up the exchange.

In response to fraud accusations, Sinovel explained that it had mislabeled a portion of its accounts receivable to compensate for losses.

With the domestic wind power equipment market still stuck in a recessive downturn dating back to 2011, when overcapacity and a lack of grid infrastructure undermined the entire industry, Sinovel had an vested interest in massaging its earnings to hide its worsening performance from Chinese investors, Liu Enqiao, a senior energy analyst with Beijing-based Anbound Consulting, told the Global Times. "Sinovel was the alpha wolf in China's wind pack, so it was particularly motivated to put up a positive front and stay on top," said Liu.

Founded in 2006 after State planners pledged to support the development of a national wind industry, Sinovel became China's largest turbine maker with a 25.3 percent share of the local market in 2009. The company eventually went public in Shenzhen in January 2011.

Based on early estimates from its own self-evaluation, Sinovel's revenues from 2011 fell by 53.15 percent from 20.3 billion yuan the pervious year, while profits were off 78.76 percent from 2.86 billion yuan over the same period.

Sinovel wrote down its first loss during the first quarter of 2012, the most recent period from which the company has disclosed financial results. During the quarter, the turbine maker reportedly fell into a 255 million yuan deficit.

But Sinovel is not the only Chinese company that has drawn fire for allegedly doctoring its books. Fraudulent disclosures have become commonplace among mainland-listed firms, Zhang Xin, an analyst from Guotai Junan Securities, told the Global Times.

Over the first three months of this year, the CSRC has imposed executive warnings on four publicly-trade firms - the latest being ChiNext-listed Wanfu Biotechnology (Hunan) Agricultural Development Co, which allegedly provided false financial information to investors between 2008 and 2011, local media reported earlier this month.

"This is a big rise from the same quarter last year," Zhang said.

As more signs of fraud come to the fore, the CSRC should strengthen oversight on sponsoring institutions and auditing firms which often neglect their responsibilities to keep accounting malfeasance out of the capital market, Zhang added.